Shinzo Abe's 'shock and awe' tactic gets a thumbs-up from voters

Monday 22 July 2013 11:42 BST

Japanese prime minister Shinzo Abe today won fresh backing at the ballot box for his “shock and awe” strategy to revive the economy, sending Asian shares higher.

Abe’s coalition now has control of both houses of the Japanese parliament for the first time in three years — helping the leader press ahead with his “third arrow” of structural reforms to shake the country out of its lengthy malaise.

His coalition won 76 of 121 seats up for election, giving it 135 seats in the upper house. He has already launched huge monetary stimulus and a public spending programme with the Bank of Japan, boosting exports with a much weaker yen since taking office and pushing the economy to 1% growth in the first three months of the year. A similar pace is expected in the second quarter.

Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: “Abe has dramatically shifted the Japanese economy onto a growth trajectory — now he needs to make sure that it stays there.”

Abe now has more political capital but he still has to battle against vested interests on a range of mooted reforms, from making the nation’s labour market more flexible to joining the Trans-Pacific Partnership regional trade agreement.

CMC Markets analyst Michael Hewson said: “Abe has got no excuses now, the market has given him the benefit of the doubt. We could be about to find out whether it is more ‘bow and arrow’ than ‘third arrow’.”

The premier also has a difficult decision to make on whether to press ahead with the proposed rise in VAT from next April from 5% to 8% to shore up Japan’s public finances although many experts fear it could hit the recovery. A further rise to 10% is slated for October 2015.

Portugal saw a steep fall in 10-year borrowing costs today after its president Anibal Cavaco Silva ruled out snap elections and said he wanted the centre-right coalition to stay in place to keep the nation’s bailout on track. Portuguese 10-year yields dropped 0.38 percentage points to 6.24%.